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Travellers win COVID claim disputes as AFCA overrules exclusions

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Two travel insurance claims for trips interrupted by the COVID-19 pandemic have been upheld during disputes heard by the Australian Financial Complaints Authority (AFCA).

AFCA ruled it was not fair or reasonable to regard broad media references as a warning for pandemic. It also said an argument coronavirus was not a natural disaster like earthquakes or bushfires could not be relied on by insurers to deny liability.

In one claim dispute, a woman purchased travel insurance from IAG on January 24 and travelled with her son to India on January 28. Her return flight booked for April 1 was cancelled at the last minute due to COVID and she lodged a claim with IAG for significant cost increases she would incur to return to Australia on the earliest available flight.

IAG declined the claim, saying it did not cover cancelled transport, or losses as a result of a pandemic. Also by not returning to Australia earlier, the woman did not take reasonable steps to avoid making a claim, it said.

AFCA said IAG’s reliance on its exclusion for “delays due to a transport provider, including the rescheduling, cancellation or breakdown of your transport” was not a “fair or appropriate interpretation in the circumstances”.

“There is no reason to suggest the airline would have cancelled the flight if it were not for the escalating COVID-19 situation,” AFCA said. “The proximate cause of the cancellation and the complainant’s loss was COVID-19 and that is a factor external to the airline and outside its control.”

The IAG policy included two other exclusions which AFCA also said it was not entitled to rely on to decline the claim.

Exclusion 18 in the policy stated “We will not cover you for losses or expenses … caused by a human pandemic, epidemic or any other outbreak of infectious disease … but only if your Certificate of Insurance was issued after an alert or warning was made regarding any outbreak or possible outbreak.”

The Certificate of Insurance (COI) was issued on January 24, five days before the Department of Foreign Affairs and Trade (DFAT) issued a travel advisory informing Australian residents to reconsider travel to China.

“I am not satisfied that, before that date, it is fair or reasonable to consider that ‘an alert or warning’ had been issued about COVID-19 for the purposes of triggering the exclusion,” AFCA said.

IAG had not shown an alert or warning of “sufficient specificity or weight” had been made before the insurance was issued in order to entitle the insurer to rely on this exclusion to decline the claim, it said.

Another exclusion stated it did not cover losses if “you did not follow advice in the mass media or any government or other official body's warning and you did not take the appropriate action to avoid or minimise any potential claims”.

IAG suggested the woman should have flown home sooner in order to mitigate the risk of a claim but AFCA said it had not shown what, if any, particular warnings or advice issued should have prompted that action.

“I am not satisfied the situation leading up to April 1 was such that the complainant, in her particular circumstances, should necessarily have felt compelled to take urgent action to return home sooner,” the AFCA ombudsman said.

In the second travel insurance claim dispute, Tokio Marine & Nichido Fire Insurance was told it could not rely on an argument that COVID was not a natural disaster to deny liability.

Its customers took out a travel policy on September 13 last year to cover a month-long holiday to the US from February 29. While overseas, they were informed on March 24 that their original March 27 return flight home was cancelled.

They made immediate alternative arrangements to return home with a different flight provider and claimed for related losses.

Tokio Marine & Nichido Fire Insurance declined to cover the $5895 cost of the alternative flight.

The policy terms covered travel expenses for a trip disrupted by a natural disaster but Tokio Marine said COVID-19 was not a natural disaster as that term referred to earth movement or weather-related events, but not to disease outbreaks which it said required human intervention.

AFCA dismissed this argument, saying the “plain, natural and ordinary meaning of the words used should prevail unless the contract demands otherwise".

“These principles have been in place for hundreds of years,” the ruling says.

“If it wanted to limit the meaning of natural disaster, it would be prudent to define the term ‘natural disaster’, as other policies have also done,” AFCA said. “It is fair for enabling clauses to be interpreted broadly if their meaning has not been restricted.”

AFCA said COVID-19 fits the natural and ordinary meaning of a ‘natural disaster’ and there was no evidence it was an artificial or manmade event.

“People falling ill because of virus infections are natural occurrences,” it said. “A person of average intelligence and education would have readily understood COVID-19 to be a natural disaster which they had coverage for under the policy.”

See the full rulings here and here.